Updated as of October 2005

More Consolidation and Rationalization Needed.

The total value of Japan's transportation equipment shipments other than motor vehicles was 4,837 billion yen in 2003, up 0.1 percent from 4,834 billion yen in 2002. The greatest value of annual shipments ever registered was 8,486 billion yen in 1985, gradually slowing as this mature industry fell to a more adequate level of 4,000 billion yen, starting around 1990 and has remained at about the same level ever since.

Industry structures are also reflecting this trend, with gradually decreasing numbers of establishments. Transportation equipment manufacturers other than motor vehicles such as ocean vessels, rolling stock and aircraft numbered approximately 3,200 establishments with 132,000 employees in 2003, down 23.8 percent in terms of establishments, and 16.2 percent in terms of employees, over the past decade.

The shipbuilding industry has been the most active part of this sectors except for automotive manufacturing. It was the world leader after WW II, but was recently overtaken in 2000 by the Korean shipbuilding industry by virtue of lower labor costs due also to economic woes which followed the bursting of the bubble economy in Japan (though Japan regained first place in 2001 with advanced technical features like double shell structures for large tankers).

Overall, the industry remained relatively robust in terms of volume, building approx. 13,931 thousand gross tons in 2004, an increase of 20 percent from 11,646 thousand gross tons in 2000.

But, shipbuilding is expected to experience increasingly difficult conditions because of the lagging recovery of ship prices and increased global capacity to build new ships, along with fiercer competition from low-wage countries.

Mitsubishi Heavy Industries and Mitsui Engineering & Shipbuilding are reviewing their management structures from the view toward integrating the entire manufacturing system. Meanwhile, Hitachi Zosen and NKK have merged their shipbuilding divisions, establishing Universal Zosen in October 2002. Kawasaki Heavy Industries spun off its shipbuilding division and formed Kawasaki Shipbuilding Corp. in October 2002, while Ishikawajima-Harima Heavy Industries (IHI) also spun off its shipbuilding operation, merged it with the naval vessels division of Sumitomo Heavy Industries and founded IHI Marine United, Inc. in October 2002.

As a result of these developments, Universal Zosen has emerged as the third largest shipbuilder in Japan, next only to Mitsubishi Heavy Industries and Mitsui Engineering & Shipbuilding.

Total exports in 2004 for transportation equipment other than motor vehicles, primarily composed of large steel vessels along with some rolling stock, amounted to 2,331 billion yen, up 12.8 percent from 2,066 billion yen in 2003.

Total imports of transportation equipment other than motor vehicles in 2004 were 641 billion yen, down 6.8 percent from 688 billion yen in 2003. The value of imports fluctuates widely as the big-ticket imports are aircraft for commercial airlines, almost all of them imported. Investment in equipment by airlines is largely dependant on the economic development, profitability and competitiveness of airlines. These companies were hurt quite seriously by past economic slumps, though the economy is currently showing signs of recovery, but the sharp rise in fuel costs remains a serious negative factor.

The total value of aircraft, engines and parts produced in 2003 was 712 billion yen, a drop of 7 percent from 765 billion yen in 2000. Demand, due to Defense Agency orders, accounted for approx. 60 percent and those from the private sector for 40 percent. The share of defense demand in 1995 accounted for 75 percent.

In the meantime, the rolling stock manufacturing industry in Japan has taken pride in its high technical standards in terms of speed, safety, comfort, and transportation capacity, as illustrated by the bullet trains operated by three major Japan Railway companies. Indeed, some railroad operators maintain their own R&D organizations, in addition to the industry-wide Comprehensive Railway Technology Institute.

The rolling stock maintained by the railroad operators is extremely diverse in type because each one tends to place uniquely specified orders with manufacturers to match its special operating environment and policies. Therefore, production of rolling stock is essentially customized in Japan, making it impossible to use production lines as in the auto industry.

The value of rolling stocks production in Japan in 2003 was 159.3 billion yen, a drop of 3 percent from 163.7 billion yen in 2002, but an increase of 6 percent from 149.1 billion yen in 2000.

In the face of economic slowdowns and ever-increasing urban motorization in Japan, the rolling stock industry is experiencing a difficult situation where the railroad companies are beginning to curb investment in equipment renewal.

Exports of railroad vehicles are mostly to the Asian region. Of particular note is the export of vehicles in 2004 worth $690 million. For the industry to expand exports, it is considered necessary to incorporate international standards used in the U.S. or European countries for the development of new train models.